The Last Word

Created: 10.01.2014

What's in a Name?

By Greg Jones, Guest Writer

So, is that driver your employee? Or maybe an independent contractor? And what’s the big deal anyways?

Well, it might not be a big deal in some respects. But if facing exposure for hourly wages, unemployment insurance taxes, and company benefits is critical to your company, then the “employee”/ “independent contractor” distinction is a big deal.

Unfortunately, in our industry the determination of driver status remains a rather murky and treacherous area. And that lack of legal predictability can serve as the wellspring for costly litigation, as exemplified by two Ninth Circuit Court of Appeals decisions issued Aug. 27, 2014. Both cases pitted FedEx Ground against FedEx delivery drivers in California and Oregon. The core issue was whether those drivers would be characterized as “employees” versus “independent contractors” under California and Oregon laws. If deemed to be “employees” (rather than “independent contractors” as their operating agreements with FedEx described them), then FedEx faced wide-ranging exposure for unpaid wages and company benefits.

In the twin decisions, the Ninth Circuit held that the contractual language labeling the drivers as “independent contractors” did not dictate the issue’s outcome. The Court found it significant, that while the drivers owned their own vehicles and had some discretion in how they operated, FedEx had dictated standards for drivers’ appearance, had set specifications for the driver-owned trucks and had controlled driver work hours as well as how and when packages were to be delivered. On balance, the Court concluded that the independence enjoyed by the drivers in certain facets of their operations was overshadowed by the motor carrier’s control (or “right to control”) other aspects of their operations. Applying California and Oregon laws, the Ninth Circuit ruled that FedEx’s drivers are employees for purposes of wages and related benefits.

So how will Arkansas trucking companies fare in the wake of these two recent decisions? As a legal matter, the Ninth Circuit’s rulings have precedential effect only in California and Oregon. Aside from those Arkansas-based carriers conducting substantial operations on the West Coast, the two rulings may have no immediate impact here. Yet given the few reported Arkansas cases addressing this issue, it is likely that advocates for groups of drivers may brandish these two decisions if and when they sue Arkansas motor carriers.

The Arkansas Trucking Association has not sat idly by. In 2013, your Association addressed a somewhat related issue in the workers compensation context. Specifically, motor carriers were facing claims by owner-operators (or by their drivers) even though the claimants may have driven for multiple carriers simultaneously and even though the owner/operators had contributed nothing towards workers’ compensation premiums. Indeed, the prospects of having to pay non-insured claims out of pocket for scores of owner-operators (and their own drivers) threatened to wreak havoc with motor carriers’ finances.

Legislation proposed by the Association eventually became Act 1166 of 2013, which created the country’s first system of its kind whereby owner-operators could elect to obtain worker’s compensation coverage provided that they would pay the premiums. This legislative solution enabled owner-operators to gain access to needed worker’s compensation coverage, yet simultaneously protected the motor carriers from undue financial exposure. But language in Act 1166 also expresses the sentiment of the Arkansas General Assembly that, even if provided workers compensation benefits, owner-operators and their drivers are not “employees” of the motor carriers for whom they operate – even if they drive exclusively for a single motor carrier. For Arkansas carriers facing the prospect of future litigation over what name their drivers will be called, this may be a useful arrow to have in their litigation quivers.

Greg Jones is a partner with Wright, Lindsey & Jennings LLP in Little Rock and serves as General Counsel to the Arkansas Trucking Association, Inc. He can be reached at gjones@wlj.com

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